Chapter 18 - The Markets for Factors of Production Flashcards
What are factors of production?
the inputs used to produce goods and services
What is the production function?
the relationship between the quantity of inputs used to make a good
What is the marginal product of labor?
- The increase in the amount of output from an additional unit of labor
- MPL = change in Q / change in L
What is the diminishing marginal product?
the property whereby the marginal product of an input declines as the quantity of the input increases
What is the value of the marginal product?
- The marginal product of an input times the price of the output
- VMPL = P X MPL
How does a competitive, profit maximizing firm determine how many workers to hire?
Up to the point where the value of the marginal product of labor equals the wage
What is the labor demand curve for a competitive, profit maximizing firm equal to?
the value of marginal product curve
What can shift the Labor Demand Curve?
1) Output Price
2) Technological Change
3) The Supply of Other Factors
What can shift the Labor Supply Curve?
1) Changes in Taste
2) Changes in Alternative Opportunities
3) Immigration
What are 2 facts about how wages are determined in competitive labor markets?
1) The wage adjusts to balance the supply and demand for labor
2) The wage equals the value of the marginal product of labor
Labor, land, and capital each earn the value of their marginal contribution to the production process. T/F
True
